Derisking: A Strategy for Growing the Biobased Economy

Agriculture (USDA)Business News/Analysis Federal Agency/Executive Branch Feedstocks Funding/Financing/Investing Opinions

October 28, 2016

Print This Article Share it With Friends

by Neil A. Belson (LeafPro Bioproducts/Biofuels Digest) ... Despite its potential benefits and some very real achievements, the biobased economy has overall progressed more slowly than many had hoped. There are several reasons for this slow progress. Technological challenges involved in converting biomass (plant material) to sugars and energy have sometimes proven more difficult than expected. The logistics involved in economically transporting large volumes of biomass have proven challenging. Many planned large-scale cellulosic ethanol projects did not materialize or were not successful. Although a handful of cellulosic ethanol facilities are operational in the U.S., most recent industry activity has been in the lower-volume but higher-margin biobased chemicals sector. The recent low price of petroleum has compounded the challenges for biobased industry, and has reduced the sense of public urgency to develop energy alternatives. Additionally and significantly, U.S. policy toward biobased industry has often been erratic and unpredictable. The combination of these factors has discouraged investors, further slowing the progress of the biobased industry.

If the biobased economy is to achieve its full potential, then the focus must be on “derisking” the bioeconomy industry so that investors will once more see the industry as a source of promising new investment. In order to “derisk” the bioeconomy, policymakers must use limited public resources where they can have the greatest impact and must identify those roles which the public sector can fill more efficiently than the private sector. This article explores several approaches for derisking the bioeconomy and accelerating its growth.

...

“Derisking” the bioeconomy requires, among other things, a systematic effort by policymakers to identify unnecessary or unproductive risks or disincentives which discourage investment in biobased economy ventures, and then determining what, if anything the public sector can and should do to minimize these risks. Some risks, such as the risk that a particular business will succeed, that its business model is viable, that its technology is commercially competitive or that its management team is capable, are inherently roles for the private sector, and are factors that private investors expect to consider in evaluating an investment in any industry. However, there are many other types of risks which public entities can play a useful and efficient role in mitigating.

A comprehensive strategy to “derisk” the bioeconomy could, at minimum, include the following:

1. Reducing Unproductive Regulatory Impediments.

...

2. Aggressive and On-Going Informational Outreach.

...

3. Identify areas where an increased governmental role can produce a significant return on investment.

...

(a) Basic Scientific Research ... Basic scientific research is particularly justified in cases where the overall benefits to society from research are likely to far exceed the costs, but where the results of this research are likely to benefit society as a whole rather than the investor which funded the research. As a consequence, the private sector is unlikely to fund such research.

...

Efficient, low-cost conversion of biomass to sugars or bio-oils has been a major factor limiting the development of the bioeconomy. While there has been public sector research in this area (as well as significant private research), a more extensive public research effort in prior years might have yielded much more progress toward a biobased economy than has actually occurred.

(b) Facilitating Scale-Up. Scaling up a technology ... Entrepreneurial companies typically must demonstrate that their technologies work at larger scale in order to obtain investment, industry partners or commitments from customers. However, the costs of establishing a scale-up demonstration facility in the chemical or energy sectors are often prohibitive – few companies are able to build a large-scale facility to test a process or product which may not work.

...

The U.S Department of Energy national laboratories are planning the establishment of an “Agile BioFoundry” which would develop and make available scalable, open-source technology for bioproducts companies. As a component or perhaps a complement to the BioFoundry concept, it may be worthwhile considering virtual scale-up teams.

...

4. Carbon credits. ... In the absence of a carbon pricing system, the environmental costs of fossil fuels are absorbed by society as a whole rather than by the manufacturers and purchasers of fossil-fuel derived products. The absence of carbon pricing effectively creates an enormous subsidy for producers of fossil fuels, who are able to avoid the costs of the greenhouse gas emissions their products generate.

...

As a general principle, any legislation which would incorporate the environmental costs of products into their market price will create a dramatic incentive to produce environmentally favorable products as well as to invest in new ventures which generate them.

...

5. Create Incentives for the “Traditional” Chemical Industry. ...

Inclusion of biobased chemicals in the RFS program could create an important incentive to invest in biobased chemicals.

In addition, the federal Toxic Substances Control Act (TSCA) could be amended so that it does not impose additional regulatory requirements on biobased chemicals which do not apply to petroleum-based chemicals.

...

6. Adopt Biobased Product Standards. ... The industry lacks generally accepted standards which would allow biomass users to immediately understand the physical or chemical properties of a particular shipment of biomass. This lack of standardization imposes an additional cost and uncertainty upon biomass processors, as there is no commonly understood “language” to communicate the properties of a particular biomass product.

...

7. Increase Participation of Rural Communities. ... Biomass investment opportunities which present comparatively lower risk and lower cost may eventually become available to rural communities. Among these are the biomass depot preprocessing facilities described above, as well as other biomass handling or conversion facilities which could be located close to farms. However, even these opportunities may not be fully practical until relevant technologies mature and there are reliable industry consumers available to utilize the partially processed biomass products.

...

Derisking the bioeconomy involves eliminating unproductive legal and regulatory constraints, increasing the public sector’s role where it can have the greatest positive impact on the industry’s growth, creating incentives which can most efficiently encourage private sector investment, and establishing an on-going outreach program to identify each of the above.

The list of ideas for derisking the bioeconomy contained in this paper is not exclusive. It is this author’s hope that this paper can help to serve as a basis for discussion, and more importantly for action, on how to expand the bioeconomy and accelerate its growth, and to more fully realize the economic, environmental and technological benefits which a biobased economy can provide. READ MORE